Three Basic Approaches To Debt Resolution

Debt is a four letter word, literally and figuratively. In America, it comes up in virtually every discussion of the economy. According to MSNBC, one in four Americans has more debt than savings. This would seem to be a shocking number, and it’s not even counting the number of individuals and families who are one emergency away from sliding into the red, due to hard times or poor financial planning.

From a young age in this country, we are taught how to use credit cards, but we aren’t taught financial responsibility or how to deal with debt. So for people who are looking for options, here’s a few ways you can approach major debt:

Debt management—Debt consolidation refers to a contractual arrangement you make with a service—typically a private company—who will consolidate all of your debts into a single monthly payment that has a considerably lower interest rate. The main advantages, besides lower monthly payments and interest, are that your debt management issues are kept confidential, meaning your employers won’t find out about it unless they somehow get access to your credit report.

Another advantage is that you won’t have to deal with the creditors at all, and in many cases, your debt consolidation company can do a direct deposit from your account each month, further simplifying the process. In many cases, you won’t have to write a single check.

Bankruptcy—Declaring bankruptcy has some pretty nasty connotations attached to it, but in many cases, it is the only option for individuals and businesses who have been financially ravished. One and a half million Americans can testify to that. Bankruptcy ceases any legal actions that are being taken against you by creditors. Filing for bankruptcy can also protect certain assets, such as homes and cars, from creditors’ claims.

While a bankruptcy will certainly diminish your credit rating, it will also give you a relatively clean slate financially speaking, though it could discourage future financial partners from funding endeavors with you.

Hunker down—It’s not pretty, but one way to combat debt is to simply hunker down and spend years painstakingly repaying your creditors. This will require disciple, frugality, and patience. It will also require extreme organization. But the process could teach you a thing or two about financial responsibility.

Each of these options are tiered, in that they depend on your level of debt. If you have a relatively small amount of debt—a few thousands for instance—you have a better chance of being able to hunker down and slowly solve your problems. Larger increments of debt may require more drastic actions, such as debt management and/or bankruptcy.